New accord to improve risk management
By Feng Jie (China Daily)
Updated: 2004-07-16 09:09

Chinese banks will not adopt the stricter capital requirements in the upcoming New Capital Accord as some developed countries do, but will make full use of it to improve their risk management, a top regulator said yesterday.

Tang Shuangning, vice-chairman of China Banking Regulatory Commission (CBRC), said at an international seminar yesterday that Chinese banks should, first of all, try to meet the requirements contained in the Commercial Banks Capital Adequacy Regulations promulgated earlier this year by the commission.

The regulations are largely based on the Capital Accord announced by the Basel Committee in 1988, which contained the widely-accepted 8 per cent capital adequacy requirement for commercial banks. The Basel Committee has decided on a new, stricter version of the Capital Accord, which will be adopted by G10 countries and some other developed nations at the end of 2006.

"Considering the specific conditions of the banking industry in China, the China Banking Regulatory Commission will still put priority on implementing well the 1988 capital accord when the developed countries start to adopt the New Capital Accord at the end of 2006," Tang told the seminar.

But Tang urged bigger Chinese banks, especially those with overseas branches, to bring themselves up to the New Capital Accord as soon as possible to avoid the high cost of running two different risk rating systems at the same time, which will undermine their competitiveness.

Their overseas branches will likely be treated by the local governments as "internationally active" and therefore asked to adopt the New Capital Accord at the end of 2006, requiring to have an internal rating-based (IRB) risk assessment system, which is based on high risk management capacity.

The New Capital Accord allows banks to use the IRB approach to rate their risk levels, instead of requiring them to hire external risk rating agencies.

Tang also urged smaller Chinese commercial banks to learn from the advanced risk management expertise in the New Capital Accord, and pledged his commission's support.

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